UPDATE 1-U.S. senators struggling over climate compromise

WASHINGTON, April 22 (Reuters) - U.S. senators writing a massive climate-change bill struggled on Thursday over how to reduce carbon dioxide pollution in the transportation sector, with signs of progress emerging after daylong negotiations.

“Yes sir,” said Senator John Kerry when asked by a reporter whether the compromise bill to fight global warming would be ready for unveiling on Monday.

Passage of a bill may be difficult this year, with many senators expressing opposition to provisions that might be included. But progress on domestic global warming legislation could bolster international efforts to rein in carbon dioxide pollution.

The fight over how Congress should reduce pollution that scientists blame for global warming was unfolding as environmentalists celebrated the 40th anniversary of Earth Day.

“Earth Day 2010 must be a reflection point that helps make this the year the Senate passes comprehensive climate and energy legislation,” Kerry said in a statement earlier.

Kerry, Graham and Lieberman had been looking at a “linked fee” on motor fuels, applied after oil is refined, as a way of handling the transportation part of the climate bill.

That fee would have been linked to the price of carbon pollution permits for electric power utilities that would be traded on a regulated market.

But according to sources, there was strong backlash from other senators to the idea of a “fee,” which opponents would label a tax on consumers they would pay at the gasoline pump.

Some environmental sources have told Reuters the three senators have been looking at a substitute idea -- one that would have oil refiners buying pollution “allowances” based on the carbon content of their fuels.

‘LOOKING AT OTHER WAYS’

Senators would not confirm that and Graham refused to discuss any new details.

But he said, “We’re looking at other ways,” instead of the linked fee.

“It’s one thing for oil and gas companies to be OK” with a transportation sector pollution-reduction scheme, “but what if you’re actually driving a truck and that’s the way you make a living. How does it effect you?” he said.

Lawmakers are always shy about legislation perceived to be raising taxes, especially as they face elections in November for one-third of the Senate and the entire House of Representatives.

Carol Browner, President Barack Obama’s top energy and climate adviser, said in a discussion on the White House website that Kerry, Graham and Lieberman would “present” their bill on Monday. “We are working with them and are very encouraged by this bipartisan group and the progress they are making,” she said.

Whenever the compromise bill is unveiled, it is expected to spark a spirited discussion among senators, corporate lobbyists and environmentalists.

Democratic Senator Barbara Boxer of California, who helped write a climate change bill last year that Kerry, Graham and Lieberman are building on, was asked if she could support the new proposal if it did not protect climate-control initiatives already in place in her state.

“We’re very optimistic about how the bill will look vis-a-vis my state,” Boxer said, adding she had not yet seen the text of the Kerry-Graham-Lieberman bill.

Sources have told Reuters the bill will pre-empt some of the climate-control efforts of states and regions, while giving them latitude to continue their own energy-efficiency efforts.

But Democratic Senator Carl Levin, who represents the automobile manufacturing state of Michigan, told reporters his support for a compromise climate bill would vanish unless there was a strong federal standard for controlling carbon pollution emissions. (Additional reporting by Timothy Gardner; Editing by Peter Cooney)